Giant Trading Losses – What not to do. Chapter 1: The London Whale

In this series, we shall examine some famous trading losses. And note down what not to do in our own operations.  Background: In 2005, Ina Drew appointed to manage “risks” using banks excess money (i.e. difference between deposits and loans). They were supposed to buy insurance. They decided to sell insurance and become a profit centre. They also removed stop loss of $20 million – apparently without informing Dimon. By 2011, the profits swelled from this twisted operation. Now they have 4x the money up to 350 billion. In 2010, this unit accounted for 25% bank’s profit. What was the…...